Determining the Characteristics of the Private Equity Targets: UK Evidence

Abstract

AbstractAcademic research on private equity (PE) has been concerned with the management of PE funds, the returns to investors from investments in PE relative to the returns available in public equity markets and, more predominantly, the analysis of the post‐investment performance of PE portfolio firms. There has been less research on how PE firms select their investments and the characteristics of their targeted firms. We derive hypotheses, from an agency perspective, on the firm‐level characteristics of PE‐targeted firms. Utilizing data on the population of private companies in the UK, we identify those firms that have received PE investment from the pool of potential investees within the population of private companies and known buyouts, and examine their pre‐investment characteristics. Using panel logit regression, we estimate multivariate models determining the probability of PE acquisition and examine the multivariate profiles of targeted firms in relation to our hypotheses on PE selection.